Govt is entitled to get its money back with interest if VVIP chopper deal is scrapped
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The integrity pact that was signed by AgustaWestland on October 3, 2008 (it is also mentioned in the final contract) specifies that the seller cannot employ any individual or firm to intercede on its behalf for an Indian contract.
In case the government processes the case for cancellation, as the defence ministry has asserted, sections 6, 7, 10 and 12 of the integrity pact will be applied, which are also reflected in articles 22 and 23 of the final contract, which was signed in 2010.
While section 6 of the pact specifies that the company cannot pay bribes or influence officials, section 7 ensures a commitment from the seller that there have been no transactions in the last three years where the company has indulged in corrupt practices or paid money to middlemen.
The pact also specifies the legal requirements that the Prevention of Corruption Act (PCA) and chapter 9 of the IPC should not be violated. Importantly, the pact empowers the government or its agency — in this case the CBI — to examine the books of the seller if a case of violation is found.
As things currently stand, India has made two payments for the helicopters. While the first one was Euro 86,439,303, or 15 per cent of the value of the contract, the second tranche was for Euro 166,878,607 that amounted to 30 per cent of the contract value.
As per the procurement rules, the seller company had to provide full bank guarantees for the 45 per cent of the payment that has already been made. In case of a violation of the integrity pact, the buyer can cancel the contract, encash the bank guarantees and ban the company for a period of five years. However, sources said the government is still trying to ascertain if the bank guarantees were indeed furnished by the seller in this contract. The banker of the chopper company is Deutsche Bank.
The integrity pact also has clauses that make it mandatory for the seller to return, in case of a violation, all the money that has been paid, along with interest. The interest rate applicable would be two per cent higher that the London Interbank Offered Rate (LIBOR) on that date.
In case the two parties do not have an agreement on the payments within 60 days of the buyer invoking the pact, an arbitration process is also defined in the pact that ensures that a three-member tribunal will be set up.
The tribunal will have one member from each party and the third member will be mutually decided, but will not be from either of the two countries or any country that either party has an objection to. In case the third member cannot be decided mutually, the president of the International Chamber of Commerce in Paris would have the authority of making an appointment within 90 days. The pact also ensures that the tribunal would function out of New Delhi or any other city in India.
The government has already taken the first step towards cancellation of the deal with the seven-day notice that has been served to the chopper manufacturer. The government will wait till Friday for AgustaWestland's reply before taking the next step if it is determined to complete the termination process for the chopper contract.
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